Insurance Markets Update – Fall 2020
In November 2019 we began publishing a series of articles on our blog regarding significant increases in insurance premiums and deductibles for strata corporations across the Lower Mainland. We wrote several follow-up articles in December 2019 and then again in June 2020. Since our initial article, the subject has become a continuing conversation in the media, which led to some high profile government legislative changes. In that first article, we asked that you please try not to shoot the messenger and here we are with the same plea amid more unwelcome news.
The first insurance renewals we saw with dramatic increases were in October 2019. It is now October 2020, and our firm is starting to see a second round of renewals come through our office for some clients.
Unfortunately, the renewals we have seen thus far continue to display significant price increases, year over year in both premiums (a recent example included a 50% increase after a 100% increase last year) and deductibles for common perils. In real dollars, this translated to an increase from approximately $200,000 to $400,000 and now $550,000- a staggering dollar amount increase. It is of course a very challenging position for strata corporations to be in, especially with other financial pressures (including some still recovering from the last premium increase), but Strata Councils need to budget accordingly and we would be remiss if we did not call your attention to the likelihood that even if you have experienced a significant increase already, you are likely to see another upon your next renewal. As this new round of renewals continues to come into our office we will have a better idea of the range of increases clients can expect (last year we were told anywhere from 40% – 400% which is a huge range that makes budgeting very difficult). We are hopeful, and are working hard to obtain some guidance, that this year’s increases won’t be quite as dramatic; however, it is likely to be dependent on a number of factors not the least of which are the insured value of the property, the claims history and of course the global insurance markets which are being impacted by COVID-19, climate change linked wildfires, and other perils. This makes it challenging for us to provide you with significantly helpful information other than what we are seeing at other properties and what we are being told by insurers, which we will continue to do through this blog and with your Property Manager at your budget meetings.
On a related matter and more specifically on the topic of what efforts are being put forth by government on behalf of the consumer, BFL Canada has provided the following summary along with their input on the new legislative changes (which we wrote about recently in more detail here) regarding Strata Insurance approved by the provincial government on September 4, 2020. We would be remiss to not clarify in the first item below that the legislative changes do not preclude an insurance firm from paying referral fees, commissions, or any kind of compensation to an insurance brokerage affiliated with a management company outside of B.C.; however, we have been advised that government is aware of this oversight in the new legislation and are working to ‘close the loophole’.
This new legislation outlined three changes that will take place over the next several months. BFL’s commentary is in bold.
- Payment of Referral Fees For Strata Insurance Prohibited
An amendment to the Financial Institutions Act has been introduced which prohibits the payment of referral fees or any other kind of compensation to property managers or anyone else who is not an insurance licensee for the sale or renewal of strata property insurance.
This requirement takes effect immediately, meaning that this practice is no longer permitted as of September 4, 2020.
- BFL CANADA (BFL) does not pay referral fees or any other kind of compensation to property managers or anyone else who is not an insurance licensee.
- Notification Period for Change/Non-renewal of Existing Insurance Policy
In instances where a client’s strata property insurance will not be renewed at the same terms and conditions, changes to the Marketing of Financial Products Regulations will require that insurers provide clients with proposed terms a minimum of 30 days prior to the expiration of their existing. If the insurer provides notice and terms to the agent instead, they must do so a minimum of 45 days prior to the expiry of the existing insurance; the agent is then responsible to provide the terms or notification of non-renewal to the client a minimum of 30 days in advance of insurance expiry. Licensees should note that due to additional requirements under the Strata Property Act and Interpretation Act, an additional five days must be added to the notification period from agent to strata corporation for notice to have been deemed given, making the requirement 35 days in actual fact. This requirement will come into effect November 1, 2020
- Reminder that BFL is an insurance broker not an insurance company.
- BFL has always and will continue to push insurance companies to provide renewal terms 30+ days in advance of renewal.
- We hope that this amendment will help deliver operational change within all insurance companies and, in turn, we can get back to delivering renewal terms or at minimum better updates 30+ days in advance of renewal to all our clients.
- Please note that this is a requirement for your current insurance companies to provide renewal terms or notice of any changes from the previous year to BFL, the broker, 45 days prior to renewal. In many cases, your insurance companies could be changing their participation levels and their terms. For example, if they reduce their participation from 100% to 80%, BFL will still need to find alternative insurers to replace the shortfall; this is often where the delay occurs.
- Disclosure of Broker Compensation
The amount of compensation involved in strata property insurance sales and renewals will now need to be disclosed to the strata corporation under the amended Marketing of Financial Products Agents will now be required to disclose in writing the actual dollar amount of
compensation they receive or, if that information is not available, an estimate of that amount and how it will be calculated. Where there is a material change to the policy terms, disclosure must be provided a minimum of 30 days prior to the expiry of the existing strata contract. Taking into consideration the additional 5 days required by the Strata Property Act and Interpretation Act, this makes the actual requirement 35 days. This requirement will come into effect November 1, 2020.
- BFL CANADA believes in transparency and we agree with and embrace this new requirement. We will take this opportunity to not just disclose the compensation we receive, but also to provide much more clarity around our role and the duties and services we perform as your independent broker.
- Over the next two months you will start to see a change in how, and ideally when we deliver renewal terms. We will provide additional information and updates once we seek further clarification from the Insurance Council on the Notification and Disclosure Requirements outlined above and in the attached.